It is getting towards the time of the year when people start thinking about how much money they might receive for their tax refunds early next year. If a potential debtor is thinking about this, then a Chapter 7 or Chapter 13 Trustee will also likely be thinking about it. Tax refunds can often be for quite a bit of money and many families rely on that money to get caught up with bills or buy things that are needed for their house. That is why it is very important that you know the ramifications of receiving a tax refund and filing for bankruptcy.
As a bankruptcy attorney, it is very important to me to protect as much of my clients assets as I possibly can. In the initial consultation I always ask if you are expecting a tax refund and for how much. It is important for an attorney to know this because we only have a certain amount of exemptions to use in each case to protect this money. An exemption is something an attorney can use to protect an asset in your bankruptcy case. In a Chapter 7 case an attorney has a wildcard exemption and possibly a head of household exemption. The law also gives you $350 to protect for each child you have that is under 21 years old.
These exemptions are important and knowing how to use them and apply them to your case is even more important. You might have noticed something before on your taxes called an Earned Income Credit. You may have also noticed something called a Child Tax Credit. If you file your taxes before your bankruptcy is filed this Earned Income Credit that shows up on your 1040 form will also protect that amount of money in your tax return. If you are in a Chapter 13 bankruptcy, both the Earned Income Credit you will receive and the Child Tax Credit will be exempted (or protected) from the Trustee and your estate.
Sometimes, potential clients come and see me and they are going to be getting back a very large refund, sometimes up to $8000 or more. The more money you are able to get back, the harder it is for me to be able to protect the entire amount. In a circumstance that I cannot protect all of it, I would possibly advise you to wait to file the bankruptcy until after it was received. Bankruptcy law can be complicated and if your money is important to you, I would strongly advise speaking with an attorney before attempting to proceed with a case filing.
If you have questions about protecting your tax refund or any other questions relating to bankruptcy, please give us a call at 636-916-5400 or visit our website at http://www.lickerlawfirm.com/. We offer free consultations at 6 different locations in the St. Louis area.